Sunday, December 17, 2006

Big Pippin's Pipnals

Alright, so I'm going to start something new. I've been backtesting a strategy and so far it seems to be working out pretty well. As a result, I am now at the forward testing stage. I've gone back and tested 6 months of data from February to August 2006 and in 6 months time the system pulled in 516 pips. I tried to pick a choppy time in the market so I could see if the system could withstand the normal range bound environment and at the same I wanted the system to still be profitable in the rare trending environments.

Although I'm not going to reveal the system, I can give you general information on it. The system is a momentum catching system which also attempts to measure the strength of the momentum. When I see a momentum move, I look at the strength and if I see that the strength is building, I enter the market. I exit when I see the momentum strength dip too low because it's basically telling me that the trend may be over.

I tested this system again from September to the current date and the system pulled in 996 pips. There were only 12 trades and the system gave a 58% win ratio. My average win was 194 pips and my average loss was -73 pips. Max drawdown was -192 pips and my max win streak was 593 pips. From September to November we had more of a trending environment which is why the pip gain was higher. So from my testing so far it seems like the system does well in both market environments.

So I will post my momentum charts as well as my trend strength charts. I am only trading the Cable for now and I trade off of a daily chart. You can see from my results that there aren't that many trades but I like that because it keeps me from having to stare at charts all day. Below are what my momentum and trend strength charts look like:

So you can see that I try to enter when I see momentum rising and trend strength gaining. I exit when trend strength drops too low. I will post a chart like this everyday so you can see where momentum and trend strength are at that current time. One rule I have is that I won't enter or hold a trade before the weekend because there is too much risk of something happening and me not being able to do anything until the market re-opens. I usually will have a trade on Monday or Tuesdays and hold it until the end of the week.

Well I think thats pretty much everything I can say about it now. I hope the forward tests work as well as my back tests. I am going to make this a 6 month project. If I'm happy with the results then I'll continue forward. If not, then it's back to the drawing board! Wish me luck!

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